Influential Factors on the Performance of Petrochemical industry s supply chain and their Ranking to achieve solutions

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1 Available online at Reef Resources Assessment and Management Technical Paper ISSN: RRAMT Vol. 38(2), 2013, 5 Influential Factors on the Performance of Petrochemical industry s supply chain and their Ranking to achieve solutions Abbasinejad ahmad a *, salimi chamkakaee asma b a First affiliation, Address, Member Scientific Staff ManagementGroup payamenoor University Mailbox Tehran Iran. b Second affiliation, AddressTeacher Management Group payamenoor University Mailbox 868Center Abadan Iran Abstract Succession in business environment needs continuous recuperation of supply chain. Also, due to changes in customer needs, supply chain performance must be continuously looked over. This article reviews the literature to identify factors affecting supply chain performance, thereupon evaluates and ranks them in petrochemical industry. Data collection through questionnaire and statistical regression and Friedman test used to analyze and rank factors. The results show that plant location, manufacturing practices and supply chain uncertainty (reverse) have impact on supply chain performance Published by RRAMT France Ltd. Keywords: supply chain, supply chain performance, plant location, supply chain uncertainty; 1. Introduction One of the primary realities in the business environments is the dependency of companies together. This point can be expressed from different aspects which the most important one is the chronological and functional dependency among agencies. Functional dependency refers to the division of works or activities areas betwixt companies while organized coordination necessitates their composed arrangement. These dependencies plus others make it necessary to have cooperation and coordination among agencies in an activity network in order to achieve the constitutional and or common goals (Jafar nejad & heidari, 2005). Considering the above mentioned dependencies, one of the main concerns of management researchers has been to explore and study different strategies in order to increase cooperation and to set up proper coordination among agencies inside a network or a chain activity (Pagell, 2004). Lee (2000) believes that cooperation of supply chain is a means to promote operations related to customer services and Faster response time to customer by redesign of decision making rights, and Workflow and resources among members of supply chain (Arshinder & Arun, 2008). Therefore, success in business environment needs constant improvement in supply chain. Also, variations in customers needs necessitates constant inspection of supply chain (Feiz abadi & jafar nejad, 2005). Thus, this essay *

2 plans to find out whether factors such as plant location, supply chain uncertainty, and works related to construction and production have any effect on petrochemicals industry s supply chain performance. 2. Previous Research Different scales are used to survey supply chain performance. They help survey operation and efficiency improvement in whole supply chain. Specific scales related to supply chain performance are categorized in four sections: quality, time, expense and flexibility (Cai &Liu, 2009). Lee and Bilington (1992) have represented a framework to survey the supply chain performance in which scales are categorized in strategic, technical, and operational levels. The scales can be divided into two financial and nonfinancial groups. They emphasize that scales of surveying performance have changed their direction from expense orientation to other fields such as customer satisfaction, productivity and quality (Bhatnagar & S.sohal, 2005). Li et al. express that information technology has no direct impact on the performance of supply chain, but it helps the performance by its positive impact on supply chain integrity (Li & et al, 2009). Toni and Tonicha have found out that most of companies, traditionally consider expenses and productivity as the bases for measuring their performance, while non disbursed scales such as quality, time and flexibility are not taken into consideration. Thus, they have emphasized on the necessity of integrity between performance scales with other systems used in a company including accounting system, production schedule, controlling system and strategic planning system (Bhatnagar & S.sohal, 2005). Won Lee expresses that internal integrity is the most important factor in reducing expenses, while unification with the supplier is the best strategy to achieve an authentic performance in supply chain. Accessibility of electronic systems for customers is an important strategy to reduce expenses. Quick and convenient ordering is the best strategy for customers to achieve authenticity in performance (Won Lee& et al, 2007). Wicker et al. express that real expense is frequently obscure and misleading in many organizations. Some expense-based approaches are formed out of traditional accounting principles, but substitutional approaches intend to improve outcomes through identification and omission of unbeneficial activities in supply chain procedure. Results of their studies show that how time and expense based analyses can give a more exact view of supply chain performance for a better decision making (Wicker & et al, 2009). Cai et al. have represented a model for the improvement of key indicators and their performance in supply chain. This model is able to diagnose certain expenses in the performance of key indicators and represent improving performance strategies in a supply chain for decision makers (Cai &Liu, 2009). Thakkar et al. introduce a collection of performance indicators for supply chain procedure such as source, fabrication and delivery in small and average companies. These indicators, explain scales in different procedures of supply chain such as bargaining, producing, reloading, and customer orders (Thakkar & et al, 2009). 3. Hypotheses In order to study effective factors on the function of petrochemical industry supply chain, the following hypotheses are under consideration: H1: Plant location is an effective factor on petrochemicals industry supply chain. H2: Uncertainty is an effective factor on petrochemicals industry supply chain. H3: Manufacture -production performance is an effective factor on petrochemicals industry supply chain. H4:Plant location and supply chain uncertainty and manufacture-production performance simultaneously influence on petrochemicals industry supply chain. 214

3 4. Research Method Reef Resources Assessment and Management Technical Paper, Vol. 38(2), 2013,, pp Considering the vast applicability of this research for applied studies, it is a correlation research. This research is done in ten different petrochemicals companies including Fanavaran, Marun, Shahid Tondguyan, Karun, Khuzestan, Ghadir, Amirkabir, Buali-Sina, Bandar Emam, and Razi which are all located in Iran, during spring 1359 (2010) Hypotheses Testing Bhatnagar and S.sohal defined scales of supply chain performance as amount of delay, goods availability, time of delivery, quality and customer services (Bhatnagar & S.sohal, 2005): In one hand, plant location is one of the most important and enormous decisions taken by operational managers which shows whereto establish new production facilities. This strategic decision leads to non-refundable company investment and frequently has a grave influence on principal scales of the supply chain performance including the amount of delay, goods availability, being responsive against variation of demands, flexibility and quality. Also uncertainty in supply chain influences its function. This uncertainty has three origins: a) Uncertainty of the supplier from the ability to supply the needs of the production unit; b) Uncertainty to the procedure caused by the untrustworthy machineries; c) Uncertainty to demands caused by inability to anticipate exact demands. Even if decision making about plant location imposes some natural limitations and obstacles, the real function of the company is under the influence of manufacture -production performances which includes: looking for optimization, computerized scheduling of procedure, computerized production, simultaneous engineering, flexible production system, internal quality guarantee system, on-time production system, maintenance system, comprehensive quality management, and cost engineering (Bhatnagar & S.sohal, 2005). Considering the aforementioned literature review, this research is based on Behtenagar and S.sohal model of performance survey. In this model, the influence of factors including plant location, uncertainty to supply chain, and manufacture-production performances on supply chain is shown. Conceptual model is represented in figure 1. plant location Factors supply chain uncertainty Supply chain performance Manufacturing practices Figure 1. Research framework. 215

4 4.2. Scope of the research This research intends to study the effects of qualifying factors on supply chain performance. So the objectives consist of the followings: 1- Determining the effect of plant location on petrochemicals industry supply chain performance. 2- Determining the effect of uncertainty on petrochemicals industry supply chain performance. 3- Determining the effect of manufacture-production performances on petrochemicals industry supply chain performance. 4- Determining the simultaneous effect of plant location, uncertainty and manufacture-production performances on petrochemicals industry supply chain performance Sample Statistical society consists of 138 experts in petrochemical industry supply chain from which 71 were taken as samples according to sampling formula Source of Data Method of gathering data is field-study while using a questionnaire as an instrument. Questions are designed in a way that answerers can tick one of the liquert five options spectrum (less, little, average, much, too much), scales are mentioned in Tables 1, 2, 3, and 4. Table 1: Measurement of plant location variables Construct Cost Infrastructure Business services Labour Government Customer/market Supplier/resources Competitor Measures used Perception of cost of land, energy, transport infrastructure, business services, telecommunications, and labour. Avallability of land, energy, transport, and telecommunications; quality of telecommunications. Avallability of land transport services, Sea freight services, financial services and information technology. Education level, skill level,availability of engineers Presence of support agencies, stability of government policies, stability of tax policies, stability of fiscal policies, protection of foreign investment, level of government support. Proximity to market, size of market, stability of market conditions. Availability of suppliers, proximity to suppliers. Key competitors locations. Table 2: Measures of supply chain uncertainty Factors Supply uncertainty Process uncertainty Demand uncertainty Measures Average on time deliveries by suppliers Average supplier accuracy in filling orders Average supplier quality in filling orders Average length of relationship with suppliers Duration of planned shutdown Duration of planned shutdown Duration of unplanned stoppages that significantly affect operations Average accuracy of monthly demand forecasts Size of customer base 216

5 Table 3: Manufacturing practices Manufacturing practices Benchmarking Computer-aided process planning Computer-integrated manufacturing Concurrent engineering Flexible manufacturing system Internal quality systems audit Just in time Manufacturing Predictive maintenance Total quality management Value engineering Table 4: Measures of supply chain performance Construct Lead time Inventory Time to market Quality Customer service Performance measure Lead time improvement over last 3 years Improvement in inventory turns over last 3 years Change in level of inventory write off over last 3 years Improvement of time to market (product development cycle) performance over last 3 years Improvement of defect rate over the last 3 years Order item fill rate performance over last 3 years Order item fill rate relative to industry Stock out situation over last 3 Flexibility Improvement of set-up times over last 3 years In order to determine the reliability of the questionnaire, the chronbach s alpha coefficient was used and calculated as represented in Table 5. Table 5: Coefficients of Cronbach's alpha Variable Cronbach's alpha The number of indicators Result plant location Reliable Supply chain uncertainty Reliable Manufacturing practices Reliable supply chain performance Reliable 217

6 5. The Results of Hypotheses Testing Reef Resources Assessment and Management Technical Paper, Vol. 38(2), 2013,, pp Results of Testing H1 Research hypothesis: Plant location factor is effective on petrochemicals industry supply chain performance. Statistical hypothesis: H0: β1= 0 H1: β1 0 Considering the qualities in table 6, the first hypothesis is accepted. In other words, plant location is effective on supply chain performance with a direct impact because B coefficient is positive scoring On the other hand, coefficient of determination equals 0.08 in this hypothesis; in other words, independent variable can predict 8% of variations related to the dependent variable. Therefore, regression model can be written with 95% significance in the following way. In regression equation, plant location (independent variable) is shown with X1and supply chain performance (dependent variable) is shown with Y. Y X 1 The above equation shows that for every unit of improvement (increase) in plant location factor, the supply chain performance improves (increases) as much as 10.8%. Table 6: Result of Hypotheses Testing Hypotheses Significant(Sig.) R R Square B Result H Confirmed H Confirmed H Confirmed 5.2. Results of Testing H2 Research hypothesis: supply chain uncertainty is effective on petrochemicals industry supply chain performance. Statistical hypothesis: H0: β2= 0 H1: β2 0 Considering the qualities in table 6, the second t hypothesis is accepted. In other words, supply chain uncertainty is effective on supply chain performance with a negative impact because B coefficient is negative scoring On the other hand, coefficient of determination equals 0.08 in this hypothesis; in other words, independent variable can predict 8% of variations related to the dependent variable. Therefore, regression model can be written with 95% significance in the following way. In regression equation, plant location (independent variable) is shown with X1and supply chain performance (dependent variable) is shown with Y. The above equation shows that for every unit of improvement (increase) in plant location factor, the supply chain performance improves (Reduced) as much as 47.2%. Y X 218 2

7 5.3. Results of Testing H3 Research hypothesis: Manufacturing practices is effective on petrochemicals industry supply chain performance. Statistical hypothesis: H0: β3= 0 H1: β3 0 Considering the qualities in table 6, the Third hypothesis is accepted. In other words, Manufacturing practices is effective on supply chain performance with a direct impact because B coefficient is positive scoring Y X 3 The above equation shows that for every unit of improvement (increase) in Manufacturing practices, the supply chain performance improves (increases) as much as 24.2% Results of Testing H4 Research hypothesis: Plant location and supply chain uncertainty and manufacture-production performance simultaneously influence on petrochemicals industry supply chain. According to table 7, the study of simultaneous effects of independent variables on supply chain performance shows that only manufacture-production performance has a significant effect on it. On the other hand, the coefficient in this hypothesis is which means independent variables can predict 51.1% of variations related to the dependent variable. Therefore, the regression model can be written in the following way with 95% significance. In regression equation, plant location is indicated with X1 and uncertainty in supply chain is indicated with X2 and manufactureproduction performance is indicated with X3 and supply chain performance (dependent variable) is indicated with Y. Y= X X X 3 Considering the above equation, it can be concluded that for every unit of improvement (increase) in plant location variable, the supply chain performance improves (increases) as much as 6.7% and for every unit of decrease in supply chain uncertainty, the supply chain performance improves (increases) as much as 24.4% and for every unit of increase in application of manufacture-production performance, the supply chain performance improves (increases) as much as 18.7%. 219

8 Table 7: Result of Multiple Regression Testing Coefficients a Model Unstandardized Coefficients Standardized t Sig. Coefficients B Std. Error Beta 1 (Constant) plant location Factors supply chain uncertainty Manufacturing practices The Results of the Other Test Freedman ranking Test: What is the ranking priority of the effective variables on petrochemicals industry supply chain? In order to answer the above question, freedman ranking test is applied. According to Table 8, highest effect on supply chain is related to manufacture-production performance and then after there are respectively supply chain uncertainty and plant location. Table 8: Result of Friedman Test Ranks Mean Rank plant location Factors 3.00 supply chain uncertainty 1.57 Manufacturing practices 1.43 Test Statistics a N 71 Chi-square df 2 Asymp. Sig Summary and Concluding Remarks Petrochemicals industry supply performance is under the influence of plant location variables. In other words, supply chain performance can improve if potential places is surveyed and ranked from different qualifying aspects such as foundation, commercial services, labor force, government, customer, market, competitors and suppliers, and then the best location is chosen according to the expense variable. Thus, it is better to consider the availability of land and energy (for example, availability of sweet water which is needed for petrochemicals industry). Also there should be attempt to find a location which is close to marketplace and accessible to find suppliers. Uncertainty has a reverse effect on supply chain performance. In other words, if supplier has a weak performance in delivering raw materials to the company and there be a high uncertainty in this regard, the function of supply chain will be influenced and lowered, and if the company has a low internal capability to provide productive goals and we cannot have an exact perception about the estimation in the working procedure, then supply chain 220

9 performance will decrease. Finally, if the company cannot predict the changeability of customers orders and their quality expectancy, the supply chain performance will decrease. Therefore, it is better to be more careful about choosing the best suppliers and about duration of delivery in order to reduce supply chain uncertainty. Also, it is suggested to use maintenance system to reduce unscheduled delays. Supply chain performance is under the influence of manufacture-production performance which is used in industry. In other words, application of such performances can be effective on the reduction of goods availability, increase of quality, increase of flexibility, and finally increase in supply chain performance. Thus, it is better to use the ideas of experts in different units such as production, quality, safety, hygiene, industry, bargain and etc. while designing the products in order to reduce the time of arrangement and to make balance between planning and producing parameters along with prevention from high expenses and redesigning charges. Besides planning operation can be done constantly and in common by petrochemicals experts, suppliers and producers. References: Arshinder, Kanda. and Arun, S.G.Deshmukh.2008.supply chain coordination : perspectives, empirical studies and research directions.international journal of production Economics, 115 pp Bhatnagar, Rohit. and S.sohal, Amrik Supply chain compititiveness:measuring the impact of location factors uncetainly and manufacturing practices. journal of Technovation,25,pp Cai Jian Liu, Xiangdong and Xiao Zhihui&Liu Jin Improving supply chain performance management A systematic approach to analyzing iterative KPI accomplishment. Decision Support Systems Journal,46,pp Feiz abadi,javad,jafar nejad,ahmad Provide a conceptual framework for evaluating supply chain performance with emphasis on integration. journal of Knowledge Management,68,pp Jafar nejad,ahmad, heidari,ali Operational strategy in supply chain environmen. journal of Knowledge Management. 70,pp Li, Cang, Yang, Hongjiao, Sun, Linyan, S.Sohal, Amrik The impact of IT implementation on supply chain integration and performance. 120, International Journal of production Economics, pp Pagell,mark Underestanding the factors that enable and inhibit the integtation of operations purchasing and logistics. journal of operations management,22, pp Thakkar, Jitesh, Kanda, Arun, Deshmukh, S.G Supply chain performance measurement frameworkfor small and medium scale enterprises. Benchmarking: An International Journal,16, pp Tung chen, chen, Fen Hung, Sue order fulfillment ability analysis in the supply chain system with Fuzzy operation times. International Journal of production Economis,101, pp Wang, juite, Feng shu, yan A possibilistic decision model for new product supply chain design. European Jornal of operational research,177, pp Wicker.L, Bernon. M, Templar.S and Mena.C understanding The relationships between time and cost to improve supply chain performance. International Journal production Economics,121, pp Won Lee, Chang, G. Kwon, Ik-Whan and Severance, Dennis.2007.Relationship between supply chain performance and degree of linkage among supplier, internal integration, and customer.supply Chain Management: An International Journal,12,pp